Two Physicians Sue Bank, Pension Firm Over Madoff Losses

When it came to his retirement fund, the physician from Easton thought he was playing it smart by investing solely in bonds and an "ultra-conservative" investment fund managed by Bernard Madoff.

Satisfied with steady returns, he eventually poured most of his retirement savings into Madoff's fund.

Then he brought in his brother. And his two daughters, whom he'd lectured about building nest eggs, even while they were in college. It was not until 22 years later — last December — that Levinson learned he'd been duped.

He was among a group of Fairfield County doctors who invested with Madoff, the once esteemed fund manager now accused of running a $50 billion Ponzi scheme to defraud investors.

In an effort to recoup some of their losses, Levinson and another doctor have filed suit against Westport National Bank, custodian of the account with Madoff, and Westport-based PSCC Services Inc., the pension consulting firm that recommended Madoff's fund to them.

The suit, filed on behalf of the two doctors, their families and other colleagues who invested in the account, basically says the bank and pension firm failed to recognize "numerous red flags" that should have tipped them off that Madoff's fund was bogus.

Levinson said Friday that, despite the lawsuit, he will probably never restore his depleted retirement fund or erase the guilt he feels for roping in his brother and daughters.

"It was devastating," Levinson said. "My family trusts me. And I trusted these people. There's no way to avoid this feeling of guilt and of not living up to my responsibility to my children, who are wonderful."

Levinson said he was telling his story to show that the effects of Madoff's alleged swindle run deeper than the much-publicized nonprofit organizations, charities and trusts that suffered after making large investments in the fund. The scandal ruined the savings of real people, he said, like him and his family.

Levinson and Dr. Richard E. Layton of Baltimore filed their lawsuit in U.S. District Court in Hartford on Feb. 13. They say in the suit that Westport National Bank "deprived [them] of the security that an independent custodian is retained to provide."

They also accuse the bank and PSCC Services of violating the federal Racketeer Influenced and Corrupt Organizations Act and the state Unfair Trade Practices Act, breach of fiduciary duty, fraud, negligent misrepresentation, aiding and abetting conversion and statutory theft, and other offenses.

"... There were numerous red flags that should have alerted defendants to the truth, but were recklessly disregarded," the lawsuit says.

Instead, they "completely ignored these red flags and did little more than collect significant fees," according to the lawsuit.

In a letter to the bank's clients last month, Rich Cummings, president of Westport National Bank, said the bank had taken on the Madoff account from another financial institution in 1999 and that "nearly all of these individuals and entities had been investing with Madoff long before the bank was founded in 1998."

"Each of these Madoff investors entered into a custodian agreement with the bank, and became a custodial client of the bank. This agreement reflected the fact that each custodial client directed the bank to give Madoff 'full discretionary authority' to invest the custodial client's funds."

TD Banknorth, which through a series of mergers acquired a bank that once served as custodian of the Madoff account, is also listed as a defendant in the lawsuit. TD Banknorth officials said Friday that they wanted to review the lawsuit before commenting. PSCC Services did not return calls for comment.

The doctors are suing for the estimated $60 million that they, their families and others who had invested in the account lost in retirement savings.

Now semi-retired, Levinson declined to say exactly how much his family lost in the scheme, but generally put his brother's loss at several hundred thousand dollars and each of his daughters' loss at less than $100,000 each. Levinson said his personal loss was "in the low seven-figure range."

As the list of Madoff's victims grows and details of the scandal continue to unfold, Levinson and his wife have occupied themselves with thinking up small ways of dealing with significantly shrunken savings.

They no longer go out to eat. They discontinued their landscaping service. Various home improvements and a two-week trip to the Mediterranean have been put on hold, and they can no longer help their daughters with medical school expenses, Levinson said. The couple are exploring a new life insurance policy because, without their "safety belt," Levinson said, he's afraid his wife would be left vulnerable if he died.

"There's no starting over to rebuild a nest egg at this age. It just seems like there's no personal recourse," said Levinson, who turns 63 next month. "It's like coming home and finding out your 30-year house has burned down and having your insurance company shut down on the same day."

Layton, who was not available for comment, is a pediatrician who had been planning to retire in the next few years, said Edith M. Kallas of the New York law firm Whatley, Drake & Kallas, which is representing the doctors in the lawsuit.

Kallas said Layton is one of several involved in the lawsuit who are no longer in a position to retire because their savings have been swept away in the Madoff scheme.

"This is not extra money. It's having a significant toll on them," Kallas said. "They worked very hard for what they have. They didn't expect this to happen to them."

"My family trusts me. And I trusted these people. There's no way to avoid this feeling of guilt and of not living up to my responsibility to my children, who are wonderful."